The 504 program is about helping a small business purchase the assets needed to take it to the next level. Loans cannot be used for working capital or purchasing inventory — allowed uses under the SBA’s primary 7(a) program.

How it works: The SBA will entirely guarantee a 504 loan covering 40 percent of project costs. The maximum limit is often $5 million on the SBA’s portion. The 504 loans do not come directly from the SBA, but are rather provided by local nonprofits that the SBA has designated as Certified Development Companies (CDC).

The business is required to kick in 10 percent out of pocket. A private sector lender, often a bank, finances the other 50 percent.

Pros: You can save money financing a real estate or equipment purchase — thanks to Uncle Sam watching your back. Payments are lower because the loan terms can last as long as 10 or 20 years. The assets being financed are the collateral, along with personal guarantees from the principal business owners. And the SBA has requirements to keep interest rates competitive.

Cons: It can be summed up in three words: federal government bureaucracy. So prepare yourself for the paperwork if you don’t have a NonBank Lender. Without a NonBank Lender to handle the application process, it becomes overwhelmingly complicated because of the multiple parties involved in the deal — the CDC, the SBA and the private lender (or lenders).

How to get it: You won’t hear about it from most ordinary lenders, but all small business owners need to know about the SBA 504 loan. We believe that this is such an important tool for small businesses that we’ve made it our sole focus — it’s all we do!

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